The Mortgage Roadmap

Don’t believe the homeownership hype

24th June, 2009 - Posted by admin - 3 Comments

You should buy a home because it's the best lifestyle choice for you and your family. You shouldn't buy a house becasue it's a good investment.

There's a simple reason for this: Homes aren't as good of an investment as real estate agents and mortgage loan officers make them out to be.

Yes, homes historically have risen in value. There's no denying that. But if you look at the world of housing, you see that these price appreciations don't necessarily equal high profits for homeowners.

For instance, when you sell a home, you do have to find another place to live. Some sellers do downsize. Some move into condos or senior living centers. But many sell their home and then buy another home. Now, if housing prices have risen, sellers may make more money selling their house than what they paid for it. But they'll also be buying a house whose value has risen, more than likely. So they'll be spending more to get their next house. There isn't a lot of financial gain there.

Secondly, don't forget that owning a house means spending on maintenance. Just last night, for instance, our air-conditioning went out on the hottest day of the year. We had to spend nearly $500 on an emergency repair. Think of how much money you spend every year to keep your house in good shape. Does that money negate whatever increase in value your house may have experienced while you've lived there? The odds are that it does.

Renting isn't perfect either, of course. You're at the mercy of your landlord, who can raise rents once your lease expires. Your landlord might sell your building to a commercial developer, and then you'll have to find somewhere else to live. But don't buy the old argument from real estate agents that buying a house makes more financial sense than does renting: It really doesn't.

Now, there are several other good reasons to buy a home. You may want something that you can truly call your own, a residence that you can renovate, personalize or transform however you want. You may want to see your children grow up with a big backyard and with friendly neighbors. You might want the extra space.

These are all valid reasons to buy a home. But buying a home because you think it's a wonderful way to make money? That's not a good reason at all.

Posted on: June 24, 2009

Filed under: becoming a better borrower